Dollar Weakens, Asian Stocks Drop on Tariff Woes: Markets Wrap

(Bloomberg) -- The dollar extended losses after its biggest plunge in three years while stocks and bonds sold off as a worsening global trade war eroded an already fragile appetite for risk. 

A gauge of Asian stocks was on track for its third consecutive week of declines as market relief turned to angst after the White House clarified US tariffs on China rose to 145%. US Treasuries extended the week’s slide. In a sign investors are seeking havens and non-US alternatives, the euro soared as much as 1.6%, the yen strengthened and gold set a new high. Equity-index futures for Europe inched up while those for the US fluctuated.

Just a day after financial markets cheered President Donald Trump’s decision to delay some of his sweeping tariffs, the selloff suggested skepticism about the planned talks with US trade partners and fear of escalating tensions with China. The much-vaunted America-first trade — buying up assets that win when the US outperforms the rest of the world — is reversing on concern that the steepest increase in levies in a century will push the world’s biggest economy into a recession.

“The repeated changes in President Trump’s tariff stance has undermined investor confidence in the US government and economy,” said Carol Kong, a strategist at Commonwealth Bank of Australia. “The selloffs in US equities, bonds and the dollar suggest market participants are reallocating their portfolios away from US dollar assets.”

The currency weakness extended into Asian trading Friday, after the Bloomberg Dollar Spot Index closed down 1.5% at the end of trading in New York Thursday. The options premium paid to hedge a dollar decline versus a basket of peers over the next week reached the highest since March of 2020, relative to positioning for gains.

Even emerging market currencies such as the Korean won and the Thai baht rallied against the dollar. A gauge of EM currencies rose about 0.6%, on pace for its best day since August.

Gains for the yen pushed the Japanese currency to around 143 per dollar on Friday, a level not seen since October. The Swiss franc touched the highest level in a decade.

“So you lose money on bonds, you lose money on the currency and you lose money on the equity market,” said Alain Bokobza, head of global asset allocation at Societe Generale. “That’s a wake up call for all global managers that they need to re-diversify the portfolio in what we call the great rotation.”

Shares in China and Hong Kong were mixed on Friday after they gained in the prior session on expectations the government will come out with more economic stimulus. The country’s top leaders were due to meet in Beijing Thursday to discuss the measures. 

News of the higher levy on Chinese goods appeared to outweigh signals from Trump that the US is close to a first deal on tariffs, without naming the country.

“The Trump administration’s stance has evolved from an all-out trade war against everyone, to a concentrated trade war against China,” said Nicolas Oudin of Gavekal Research. “Most investors believe that China shot itself in the foot by retaliating. The view from Beijing is different. Many in China read the ‘Trump fold’ as a sign of US weakness, and therefore as a validation of China’s decision to escalate.”

China is likely to defy expectations from some on Wall Street of big yuan devaluations against the dollar, opting instead to only moderately weaken the managed currency, according to Allan von Mehren, the chief analyst at Danske Bank.

The nation’s daily reference rate for the yuan edged slightly up on Friday, after weakening for six straight sessions, amid the dollar’s losses.

As Trump unleashes an all-out assault on global trade, the status of US Treasury bonds as the world’s safe haven is increasingly coming into question. Yields, especially on longer-term debt, have surged in recent days while the dollar has plunged.

US government debt resumed a selloff from earlier in the week even as a solid US sale of 30-year Treasuries signaled appetite for bonds. On Friday, the 10-year Treasury yield rose as much as six basis points, adding to the nine on Thursday.

The worsening tariffs spat is already affecting corporations. Audi has suspended deliveries to the US and the bigger-than-expected import tax has also prompted Japan’s Nintendo Co. to delay pre-orders for its long-awaited Switch 2 gaming console. From Ray-Bans to wigs, US buyers may see unexpected price rises.

Retailer Five Below Inc. has asked vendors to turn away products waiting for shipment in China before they set off for the US.

In commodities, oil headed for a second weekly loss, while gold extended gains.

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 1:57 p.m. Tokyo time
• Nikkei 225 futures (OSE) fell 4.1%
• Japan’s Topix fell 4%
• Australia’s S&P/ASX 200 fell 1.4%
• Hong Kong’s Hang Seng rose 0.6%
• The Shanghai Composite rose 0.1%
• Euro Stoxx 50 futures rose 0.5%

Currencies

• The Bloomberg Dollar Spot Index fell 0.6%
• The euro rose 1.1% to $1.1321
• The Japanese yen rose 1.1% to 142.93 per dollar
• The offshore yuan fell 0.2% to 7.3248 per dollar

Cryptocurrencies

• Bitcoin rose 1.2% to $80,829.92
• Ether rose 1.1% to $1,546.46

Bonds

• The yield on 10-year Treasuries advanced one basis point to 4.44%
• Australia’s 10-year yield advanced eight basis points to 4.41%

Commodities

• West Texas Intermediate crude fell 0.3% to $59.89 a barrel
• Spot gold rose 1% to $3,209.40 an ounce

This story was produced with the assistance of Bloomberg Automation.

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